<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

(Mark One)

[X]   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934

For the quarterly period ended March 27, 2005

                                       OR

[ ]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934

For the transition period from _______________________ to ______________________

                          Commission File Number: 19594

                          INSURANCE AUTO AUCTIONS, INC.
              ----------------------------------------------------
             (Exact name of registrant as specified in its charter)

Illinois                                                              95-3790111
--------------------------------------------------------------------------------
(State or other jurisdiction of             (I.R.S. Employer Identification No.)
incorporation or organization)

Two Westbrook Corporate Center, Suite
500, Westchester, Illinois                                                 60154
--------------------------------------------------------------------------------
(Address of principal executive offices)                              (Zip Code)

                                 (708) 492-7000
--------------------------------------------------------------------------------
              (Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12B-2 of the Exchange Act.) Yes [X] No [ ]

                      APPLICABLE ONLY TO CORPORATE ISSUERS

Number of shares outstanding of each of the issuer's classes of common stock, as
of April 29, 2005:

            Class                                          Outstanding
------------------------------                          -----------------
Common Stock, $0.001 Par Value                          11,862,344 shares

<PAGE>

                                      INDEX

                          INSURANCE AUTO AUCTIONS, INC.

<TABLE>
<CAPTION>
                                                                                 PAGE NUMBER
                                                                                 -----------
<S>                                                                              <C>
PART I.  FINANCIAL INFORMATION ..............................................         3

Item 1.  Financial Statements (Unaudited) ...................................         3

         Condensed Consolidated Statements of Operations ....................         3
         Condensed Consolidated Balance Sheets ..............................         4
         Condensed Consolidated Statements of Cash Flows ....................         5
         Notes to Condensed Consolidated Financial Statements ...............         6

Item 2.  Management's Discussion and Analysis of Financial Condition
          and Results of Operations .........................................        11
         Overview ...........................................................        11
         Acquisitions and New Operations ....................................        11
         Results of Operations ..............................................        12
         Financial Condition and Liquidity ..................................        12
         Factors That May Affect Future Results .............................        13

Item 3.  Quantitative and Qualitative Disclosures about Market Risk .........        15

Item 4.  Controls and Procedures ............................................        15

PART II. OTHER INFORMATION ..................................................        16

Item 1.  Legal Proceedings ..................................................        16

Item 2.  Changes in Securities, Use of Proceeds and Issuer Purchases of
          Equity Securities .................................................        17

Item 3.  Defaults upon Senior Securities ....................................        17

Item 4.  Submission of Matters to a Vote of Security Holders ................        17

Item 5.  Other Information ..................................................        17

Item 6.  Exhibits and Reports on Form 8-K ...................................        18

SIGNATURES ..................................................................        19
</TABLE>

                                        2
<PAGE>

                         INSURANCE AUTO AUCTIONS, INC.
                                AND SUBSIDIARIES

                CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                (in thousands except earnings per share amounts)

<TABLE>
<CAPTION>
                                      THREE MONTHS ENDED
                                    ----------------------
                                    MARCH 27,    MARCH 28,
                                      2005         2004
                                    ---------    ---------
                                          (UNAUDITED)
<S>                                 <C>          <C>
Revenues:
   Vehicle sales                     $ 9,843      $ 7,127
   Fee income                         61,100       50,064
                                     -------      -------
                                      70,943       57,191
Cost of sales:
   Vehicle cost                        8,465        5,984
   Branch cost                        42,677       38,395
                                     -------      -------
                                      51,142       44,379
                                     -------      -------

   Gross profit                       19,801       12,812

Operating expenses:
   Selling, general and
   administrative                     11,282        8,480
   Gain on sale of property
    and equipment                        (32)          (2)
                                     -------      -------
     Earnings from operations          8,551        4,334
Other (income) expense:
   Interest expense                      419          477
   Other income                          (32)         (10)
                                     -------      -------
     Earnings before income taxes      8,164        3,867

Provision for income taxes             3,143        1,566
                                     -------      -------
     Net earnings                    $ 5,021      $ 2,301
                                     =======      =======

Net earnings per share:
   Basic                             $   .43      $   .20
                                     =======      =======
   Diluted                           $   .41      $   .20
                                     =======      =======

Weighted average shares
   outstanding:
   Basic                              11,607       11,537
   Effect of dilutive securities         686          132
                                     -------      -------
   Diluted                            12,293       11,669
                                     =======      =======
</TABLE>

See accompanying notes to condensed consolidated financial statements.

                                        3
<PAGE>

                          INSURANCE AUTO AUCTIONS, INC.
                                AND SUBSIDIARIES

                     CONDENSED CONSOLIDATED BALANCE SHEETS
                (dollars in thousands except per share amounts)

<TABLE>
<CAPTION>
                                                                  MARCH 27,    DECEMBER 26,
                                                                    2005          2004
                                                                 -----------   ------------
                                                                 (UNAUDITED)
<S>                                                              <C>           <C>
ASSETS
Current assets:
   Cash                                                           $  21,834     $  13,325
   Accounts receivable, net                                          51,169        50,443
   Inventories                                                       15,539        14,498
   Deferred income taxes                                              5,296         4,693
   Other current assets                                               3,504         1,613
                                                                  ---------     ---------
     Total current assets                                            97,342        84,572
                                                                  ---------     ---------
Property and equipment, net                                          74,716        74,684
Deferred income taxes                                                 6,613         6,481
Intangible assets, net                                                1,604         1,747
Goodwill                                                            137,494       137,494
Other assets                                                            562           482
                                                                  ---------     ---------
                                                                  $ 318,331     $ 305,460
                                                                  ---------     ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
   Accounts payable                                               $  40,970     $  38,505
   Accrued liabilities                                               12,565        13,513
   Obligations under capital leases                                     807         1,094
   Income taxes payable                                               4,013         1,067
   Obligations under line of credit                                   9,000         6,000
   Current installments of long-term debt                             7,500         7,512
                                                                  ---------     ---------
     Total current liabilities                                       74,855        67,691
                                                                  ---------     ---------

Deferred income taxes                                                21,479        20,729
Other liabilities                                                     4,613         4,353
Obligations under capital leases                                        570           661
Long-term debt, excluding current installments                        7,500         9,375
                                                                  ---------     ---------
     Total liabilities                                              109,017       102,809
                                                                  ---------     ---------

Shareholders' equity:
   Preferred stock, par value of $.001 per share
     Authorized 5,000,000 shares; none issued                             -             -
   Common stock, par value of $.001 per share
     Authorized 20,000,000 shares; 12,760,498 shares issued
     and 11,622,661 outstanding as of March 27, 2005; and
     12,709,758 shares issued and 11,569,156 outstanding
     as of December 26, 2004                                             12            12
   Additional paid-in capital                                       152,636       151,793
   Treasury stock, 906,562 shares at March 27, 2005 and
     906,480 shares at December 26, 2004                             (9,638)       (9,637)
   Deferred compensation related to restricted stock                 (3,648)       (4,343)
   Accumulated other comprehensive loss                                 (81)         (186)
   Retained earnings                                                 70,033        65,012
                                                                  ---------     ---------
     Total shareholders' equity                                     209,314       202,651
                                                                  ---------     ---------
                                                                  $ 318,331     $ 305,460
                                                                  =========     =========
</TABLE>

See accompanying notes to condensed consolidated financial statements.

                                        4
<PAGE>

                          INSURANCE AUTO AUCTIONS, INC.
                                AND SUBSIDIARIES

                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (dollars in thousands)

<TABLE>
<CAPTION>
                                                                                          THREE MONTHS ENDED
                                                                                       -----------------------
                                                                                       MARCH 27,     MARCH 28,
                                                                                         2005          2004
                                                                                       ---------     ---------
                                                                                             (UNAUDITED)
<S>                                                                                    <C>           <C>
Cash flows from operating activities:
Net earnings                                                                           $   5,021     $   2,301
Adjustments to reconcile net earnings to net cash provided by operating activities:
     Depreciation and amortization                                                         3,203         3,243
     Gain on sale of fixed assets                                                            (32)           (2)
     Deferred compensation related to restricted stock                                       695            57
     Deferred income taxes                                                                    15           392
     Tax benefit related to employee stock compensation                                       94             -

     Changes in assets and liabilities (excluding effects of acquired companies):
          (Increase) decrease in:
             Accounts receivable, net                                                       (726)       (2,045)
             Inventories                                                                  (1,041)       (1,285)
             Other current assets                                                         (1,891)          353
             Other assets                                                                    (80)         (117)
          Increase (decrease) in:
             Accounts payable                                                              2,465         5,069
             Accrued liabilities                                                            (583)       (1,338)
             Income taxes                                                                  2,946         2,117
                                                                                       ---------     ---------
     Net cash provided by operating activities                                            10,086         8,745
                                                                                       ---------     ---------
Cash flows from investing activities:
   Capital expenditures                                                                   (3,148)       (5,417)
   Proceeds from disposal of property and equipment                                           88           180
                                                                                       ---------     ---------
        Net cash used in investing activities                                             (3,060)       (5,237)
                                                                                       ---------     ---------

Cash flows from financing activities:
   Proceeds from issuance of common stock                                                    749           259
   Proceeds from short-term borrowings                                                     3,000         7,000
   Principal payments on long-term debt                                                   (1,887)       (1,886)
   Purchase of treasury stock                                                                 (1)            -
   Principal payments - capital leases                                                      (378)         (712)
                                                                                       ---------     ---------

Net cash provided by financing activities                                                  1,483         4,661
                                                                                       ---------     ---------
Net increase in cash                                                                       8,509         8,169

Cash at beginning of period                                                               13,325        15,486
                                                                                       ---------     ---------
Cash at end of period                                                                  $  21,834     $  23,655
                                                                                       =========     =========
Supplemental disclosures of cash flow information:
   Cash paid or refunded during the period for:
     Interest                                                                          $     370     $     656
                                                                                       =========     =========
     Income taxes paid                                                                 $     154     $       2
                                                                                       =========     =========
     Income taxes refunded                                                             $       2     $   1,011
                                                                                       =========     =========
</TABLE>

See accompanying notes to condensed consolidated financial statements.

                                        5
<PAGE>

                          INSURANCE AUTO AUCTIONS, INC.
                                AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  (UNAUDITED)

1.    GENERAL

      The unaudited condensed consolidated financial statements of Insurance
      Auto Auctions, Inc. and its subsidiaries (collectively, the "Company")
      have been prepared on the same basis as the annual audited consolidated
      financial statements and, in the opinion of the Company, reflect all
      adjustments necessary for a fair presentation for each of the periods
      presented. The results of operations for interim periods are not
      necessarily indicative of results for full fiscal years.

      As contemplated by the Securities and Exchange Commission ("SEC") under
      Rule 10-01 of Regulation S-X, the accompanying consolidated financial
      statements and related notes have been condensed and do not contain
      certain information that is included in the Company's annual consolidated
      financial statements and notes thereto. For further information, refer to
      the consolidated financial statements and notes thereto included in the
      Company's Annual Report on Form 10-K for the fiscal year ended December
      26, 2004.

      Fiscal year 2004 consisted of 52 weeks and ended December 26, 2004. Fiscal
      year 2005 will consist of 52 weeks and will end on December 25, 2005.

      The Company operates in a single business segment - providing insurance
      companies and other vehicle suppliers cost-effective salvage processing
      solutions including selling total loss and recovered theft vehicles.

      Management of the Company has made a number of estimates and assumptions
      relating to the reporting of assets and liabilities and the disclosure of
      contingent assets and liabilities to prepare these financial statements in
      conformity with accounting principles generally accepted in the United
      States of America. Actual results could differ from those estimates.

      On February 22, 2005, the Company entered into a merger agreement ("Merger
      Agreement") pursuant to which the Company will be merged with an affiliate
      of Kelso & Company, L.P., a New York-based equity investment firm (the
      "Merger") that specializes in acquisition transactions ("Kelso").

      Pursuant to the Merger Agreement, each outstanding share of Company common
      stock will be exchanged for the right to receive $28.25 in cash, without
      interest.

      The Company has circulated to its shareholders a Proxy Statement dated
      April 26, 2005 for a Special Meeting of Shareholders to be held on May 25,
      2005, to consider and approve the Merger. Pending approval of the Merger
      Agreement by the shareholders and satisfaction of the other conditions
      included in the Merger Agreement, the Company expects the Merger to be
      completed shortly after the Special Meeting of Shareholders. Information
      contained in this Quarterly Report, especially forward looking
      information, should be read in light of the Merger.

      NEW ACCOUNTING PRONOUNCEMENTS

      In December 2004, the FASB issued Statement of Financial Accounting
      Standards No. 123R (SFAS 123R) "Share-Based Payment." SFAS 123R requires
      that the cost resulting from all share-based payment transactions be
      recognized in the financial statements. SFAS 123R establishes fair value
      as the measurement method in accounting for share-based payments to
      employees and eliminates the alternative use of the intrinsic value method
      of accounting under APB Opinion No. 25, "Accounting for Stock Issued to
      Employees." This statement is effective for public entities as of the
      beginning of the first annual reporting period that begins after June 15,
      2005. The Company is currently evaluating the impact of adoption on our
      financial statements.

                                        6
<PAGE>

2.    INCOME TAXES

      Income taxes were computed using the effective tax rates estimated to be
      applicable for the full fiscal years, which are subject to ongoing review
      and evaluation by the Company.

3.    COMPUTATION OF EARNINGS PER SHARE

      The computation of basic earnings per share is made using the weighted
      average number of common shares outstanding during the period. Diluted
      earnings per share includes the number of additional shares that would
      have been outstanding if the dilutive common shares had been issued. The
      following table sets forth the computation of basic and diluted earnings
      per share:

<TABLE>
<CAPTION>
                                            THREE MONTHS ENDED
                                          -----------------------
                                          MARCH 27,     MARCH 28,
                                            2005          2004
                                          ---------    ----------
<S>                                       <C>          <C>
BASIC EARNINGS PER SHARE:
   Net earnings                           $  5,021      $  2,301
   Average basic shares outstanding         11,607        11,537
   Basic net earnings per share           $    .43      $    .20

DILUTED EARNINGS PER SHARE:
   Net earnings                           $  5,021      $  2,301
   Average basic shares outstanding         11,607        11,537
   Effect of dilutive securities
     Stock options                             647            65
     Restricted stock                           39            67
   Average diluted shares outstanding       12,293        11,669
   Diluted net earnings per share         $    .41      $    .20
</TABLE>

4.    GOODWILL AND INTANGIBLES

      The Company performs its annual impairment test during the first quarter
      of each year. This year's annual impairment test did not indicate any
      impairment. Goodwill and other intangibles are recorded at cost less
      accumulated amortization and consist of the following at March 27, 2005
      and December 26, 2004:

<TABLE>
<CAPTION>
                                                       COST
                             ---------------------------------------------------------
                                                     MARCH 27,           DECEMBER 26,
                             ASSIGNED LIFE             2005                  2004
                             -------------     ---------------------     -------------
                                               (dollars in millions)
<S>                          <C>               <C>                       <C>
Goodwill                      Indefinite             $ 137.5                $ 137.5
Covenants not to compete     3 to 5 years                4.2                    4.2
                                                     -------                -------
                                                     $ 141.7                $ 141.7
                                                     =======                =======
</TABLE>

<TABLE>
<CAPTION>
                                              ACCUMULATED AMORTIZATION
                             ---------------------------------------------------------
                                                     MARCH 27,           DECEMBER 26,
                             ASSIGNED LIFE             2005                  2004
                             -------------     ---------------------     -------------
                                               (dollars in millions)
<S>                          <C>               <C>                       <C>
Covenants not to compete     3 to 5 years             $ (2.6)               $ (2.5)
</TABLE>

                                        7
<PAGE>

      Amortization expense for the three months ended March 27, 2005 and March
      28, 2004 was $0.1 million, respectively. This amount is included within
      selling, general and administrative expense on the Company's Condensed
      Consolidated Statements of Operations. Based upon existing intangibles,
      the projected annual amortization expense for each of the years 2005 and
      2006 is $0.6 million, $0.4 million for 2007 and $0.2 million for 2008. The
      assets will be fully amortized by 2009.

5.    FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES

      The Company is exposed to interest rate fluctuations on its floating rate
      credit facility, under which the Company has outstanding a $15.0 million
      term loan at March 27, 2005. In 2002, the Company entered into an interest
      rate swap to mitigate its exposure to interest rate fluctuations, and does
      not, as a matter of policy, enter into hedging contracts for trading or
      speculative purposes. At March 27, 2005, the interest rate swap agreement
      had a notional amount of $15.0 million, and provided that the Company pay
      a fixed rate of interest of 4.4% and receive a LIBOR-based floating rate
      on the notional amount. At March 27, 2005, the interest rate on the term
      loan was 5.4%. At March 27, 2005, the entire swap agreement qualified for
      hedge accounting and all changes in the fair value of the swap were
      recorded, net of tax, through other comprehensive income (see Note 6). The
      fair market value of the swap as of March 27, 2005 and March 28, 2004 was
      approximately $131,000 and $970,000, respectively.

6.    COMPREHENSIVE INCOME

      Comprehensive income consists of net earnings and the change in fair value
      of the Company's interest rate swap agreement as follows (dollars in
      thousands):

<TABLE>
<CAPTION>
                                          THREE MONTHS ENDED
                                        ----------------------
                                        MARCH 27,    MARCH 28,
                                          2005         2004
                                        ---------    ---------
<S>                                     <C>          <C>
Net earnings                            $  5,021     $  2,301
Other comprehensive income
   Change in fair value of interest
     rate swap agreement                     170           44
   Income tax expense                        (65)         (17)
                                        --------     --------
Comprehensive income                    $  5,126     $  2,328
                                        ========     ========
</TABLE>

      The changes in fair value of the Company's interest rate swap agreement
      were due to changes in interest rates.

7.    STOCK OPTIONS

      The Company accounts for its fixed plan stock options under the intrinsic
      value-based method of accounting prescribed by Accounting Principles Board
      Opinion No. 25, "Accounting for Stock Issued to Employees," and related
      interpretations. As such, compensation expense would be recorded on the
      date of grant and amortized over the period of service only if the current
      market value of the underlying stock exceeded the exercise price. No
      stock-based employee compensation cost related to stock option grants is
      recognized in net earnings, as all options granted had an exercise price
      equal to the market value of the underlying common stock on the date of
      grant.

      In 2003, the Company initiated a restricted stock grant program. Under the
      Company's restricted stock grant program, shares of the Company's common
      stock may be granted at no cost to certain officers and key employees.
      Plan participants are entitled to cash dividends and to vote their
      respective shares received pursuant to the program. Restrictions limit the
      sale or transfer of these shares over a four-year period. The sale and
      transfer restrictions on shares received under the program expire at a
      rate of 25% per year or earlier, based on the achievement of certain
      performance based goals. Upon issuance of shares of common stock under the
      plan, unearned compensation equivalent to the market value of the shares
      at the date of the grant is charged to shareholders' equity and
      subsequently amortized to expense over the four-year restriction period.
      In 2004, 182,600 restricted shares were granted and in 2003, 66,500
      restricted shares were granted.

                                        8
<PAGE>

      Compensation expense for the three months ended March 27, 2005 was $0.7
      million and $0.1 million for the three months ended March 28, 2004.
      Compensation expense was accelerated by $0.4 million in the three months
      ended March 27, 2005 due to the anticipated achievement of certain
      performance levels. In the first quarter of 2005, there were forfeitures
      of 1,200 restricted shares. There were no forfeitures of restricted shares
      in 2004.

      The following table illustrates the effect on net earnings if the Company
      had applied the fair value recognition provisions of Statement of
      Financial Accounting Standards ("SFAS") No. 123, "Accounting for
      Stock-Based Compensation," to the measurement of stock-based employee
      compensation relating to stock options and restricted stock, including
      straight-line recognition of compensation costs over the related vesting
      periods for fixed awards:

<TABLE>
<CAPTION>
                                                  THREE MONTHS ENDED
                                               -------------------------
                                               MARCH 27,       MARCH 28,
                                                  2005            2004
                                               ---------       ---------
<S>                                            <C>             <C>
Net earnings as reported                        $5,021          $ 2,301
Add: Stock-based employee compensation
   expense included in reported  net
   earnings, net of related tax effects            428               34
                                                ------          -------
Deduct: Total stock-based employee
   compensation expense determined under
   the fair value based method for all
   awards, net of related tax effects             (906)            (619)
                                                ------          -------
Pro forma net earnings                          $4,543          $ 1,716
                                                ======          =======
Earnings per share:

     Basic - as reported                        $  .43          $   .20
                                                ======          =======
     Basic - pro forma                          $  .39          $   .15
                                                ======          =======
     Diluted - as reported                      $  .41          $   .20
                                                ======          =======
     Diluted - pro forma                        $  .37          $   .15
                                                ======          =======
</TABLE>

8.    COMMITMENTS AND CONTINGENCIES

      The Company leases its facilities and certain equipment under operating
      and capital leases. As of March 27, 2005, the Company had not entered into
      any capital leases in the current year.

      On February 4, 2003, the Company filed a lawsuit in the Superior Court of
      California, County of Sacramento, against, among others, Emery Air Freight
      Corporation ("Emery") and Tennessee Technical Services ("TN Tech"), the
      aircraft maintenance provider. The lawsuit seeks to recover damages caused
      by the crash of an Emery DC-8 aircraft onto the Company's Rancho Cordova,
      California facility on February 16, 2000. The aircraft was destroyed, and
      the three crew members aboard the aircraft were killed. The crash and the
      resulting release of jet fuel and fire destroyed a significant part of the
      Company's facility and contaminated it with ash, hydrocarbon, lead and
      other toxic materials. Emery refused to clean up the contamination, and
      the Company was required to do so. The Company suffered more than $3.0
      million in inventory loss, clean-up and remediation costs, business
      interruption losses, legal and consulting fees, and other losses, costs,
      and expenses. The Company's property insurance carrier, Reliance, paid a
      large portion of its inventory losses. On April 12, 2005, the Company
      engaged in mediation with TN Tech. The mediation resulted in a settlement
      of the dispute whereby TN Tech agreed to pay $2.35 million to the Company
      for its unrecovered losses resulting from the crash. In exchange, the
      Company agreed to release TN Tech and Emery from all of its claims arising
      from the crash. The Company expects payment from the settlement mid-May
      2005. The Company has not recorded any income related to the settlement
      with TN Tech.

                                        9
<PAGE>

9.    TREASURY STOCK

      The Company records treasury stock purchases using the cost method of
      accounting. In the first quarter of 2005, the Company repurchased 82
      shares of common stock at an average price of $21.75 per share to cover
      tax expense realized by some employees whose restricted stock vested. The
      Company did not repurchase any shares during the first quarter of 2004.

10.   ACCOUNTS RECEIVABLE

      Accounts receivable consists of the following as of March 27, 2005 and
      December 26, 2004:

<TABLE>
<CAPTION>
                                         MARCH 27, 2005     DECEMBER 26, 2004
                                         --------------     -----------------
                                           (Unaudited)
                                               (dollars in thousands)
<S>                                      <C>                <C>
Unbilled receivables                        $ 37,114             $ 35,555
Trade accounts receivable                     13,898               14,596
Other receivables                                861                1,086
                                            --------             --------
                                              51,873               51,237
Less allowance for doubtful accounts            (704)                (794)
                                            --------             --------
                                            $ 51,169             $ 50,443
                                            ========             ========
</TABLE>

      Unbilled receivables represent amounts paid to third parties on behalf of
      insurance companies for which the Company will be reimbursed when the
      vehicle is sold. Trade accounts receivable includes fees and proceeds to
      be collected from both insurance companies and buyers.

11.   PROPERTY AND EQUIPMENT

      Property and equipment consists of the following at March 27, 2005 and
      December 26, 2004:

<TABLE>
<CAPTION>
                                                      MARCH 27,   DECEMBER 26,
                                                        2005         2004
                                                    -----------   ------------
                                                    (Unaudited)
                                                     (dollars in thousands)
<S>                                                 <C>           <C>
Land                                                 $  7,662        $ 7,662
Buildings and improvements                             13,878         13,722
Equipment                                              51,759         49,645
Leasehold improvements                                 50,184         49,485
                                                     --------       --------
                                                      123,483        120,514
Less accumulated depreciation and amortization        (48,767)       (45,830)
                                                     --------       --------
                                                     $ 74,716       $ 74,684
                                                     ========       ========
</TABLE>

                                       10
<PAGE>

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.

This report contains forward-looking statements that are subject to certain
risks, trends and uncertainties that could cause actual results to differ
materially from those projected, expressed, or implied by such forward-looking
statements. In some cases, you can identify forward-looking statements by use of
words such as "may, will, should, believes, expects, plans, future, intends,
could, estimate, predict, projects, targeting, potential or contingent," the
negative of these terms, or other similar expressions. The Company's actual
results could differ materially from those discussed or implied herein. Factors
that could cause or contribute to such differences include, but are not limited
to, those discussed in "Factors That May Affect Future Results" below and in the
Company's Annual Report on Form 10-K for the fiscal year ended December 26,
2004. You should not place undue reliance on any forward-looking statements.
Except as expressly required by the federal securities laws, the Company
undertakes no obligation to publish, update or revise any forward-looking
statements, whether as a result of new information, future events, changed
circumstances, or any other reason.

OVERVIEW

      Insurance Auto Auctions, Inc. provides insurance companies and other
vehicle suppliers cost-effective salvage processing solutions principally on a
consignment or purchase agreement method of sale. The consignment method
includes both a percentage of sale and fixed fee basis. The percentage of sale
consignment method offers potentially increased profits over fixed fee
consignment by providing incentives to both the Company and the salvage provider
to invest in vehicle enhancements, thereby maximizing vehicle selling prices.
Under the percentage of sale and fixed fee consignment methods, the vehicle is
not owned by the Company and only the fees associated with processing the
vehicle are recorded as revenue. The proceeds from the sale of the vehicle
itself are not included in revenue. Under the purchase agreement sales method,
the vehicle is owned by the Company, and the proceeds from the sale of the
vehicle are recorded as revenue.

      On February 22, 2005, the Company entered into a merger agreement ("Merger
Agreement") pursuant to which the Company will be merged with an affiliate of
Kelso & Company, L.P., a New York-based equity investment firm (the "Merger")
that specializes in acquisition transactions ("Kelso").

      Pursuant to the Merger Agreement, each outstanding share of Company common
stock will be exchanged for the right to receive $28.25 in cash, without
interest.

      The Company has circulated to its shareholders a Proxy Statement dated
April 26, 2005 for a Special Meeting of Shareholders to be held on May 25, 2005,
to consider and approve the Merger. Pending approval of the Merger Agreement by
the shareholders and satisfaction of the other conditions included in the Merger
Agreement, the Company expects the Merger to be completed shortly after the
Special Meeting of Shareholders. Information contained in this Quarterly Report,
especially forward looking information, should be read in light of the Merger.

      The Company's operating results are subject to fluctuations, including
quarterly fluctuations that can result from a number of factors, some of which
are more significant for sales under the purchase agreement method.

      The following discussion and analysis should be read in conjunction with
the condensed consolidated financial statements and notes thereto and the
Factors That May Effect Future Results appearing elsewhere in this Report.

ACQUISITIONS AND NEW OPERATIONS

      Since its initial public offering in 1991, the Company has grown through a
series of acquisitions and opening of new sites to include 78 sites as of April
30, 2005.

                                       11
<PAGE>

RESULTS OF OPERATIONS

Three Months Ended March 27, 2005 Compared to the Three Months Ended March 28,
2004

      Revenues were $70.9 million for the three months ended March 27, 2005, up
from $57.2 million for the same three month period in 2004. Fee income in the
first quarter increased 22% to $61.1 million, versus $50.1 million in the first
quarter of last year due to more favorable pricing and an increase in volumes
sold.

      Cost of sales increased $6.7 million to $51.1 million for the three months
ended March 27, 2005, versus $44.4 million for the same period last year.
Vehicle cost of $8.5 million is up $2.5 million from the $6.0 million incurred
in the first quarter of 2004. Branch cost of $42.7 million increased $4.3
million from $38.4 million for the same period last year. Branch cost includes
tow, office and yard labor, occupancy, depreciation, and other costs inherent in
operating the branch. The increase in costs in the first quarter of 2005
compared to the same period last year is attributable to increased volumes,
higher fuel and insurance costs, and additional performance-based bonus
accruals.

      Gross profit increased 55% to $19.8 million for the three months ended
March 27, 2005, from $12.8 million for the comparable period in 2004, primarily
resulting from the increase in volumes and favorable pricing.

      Selling, general and administrative expense of $11.3 million increased
$2.8 million, or 33%, from the $8.5 million of expense incurred during the first
quarter of last year. The increase is due to one-time merger-related costs of
$1.2 million, additional performance based bonus accruals, acceleration of
restricted stock vesting and costs related to compliance with the Sarbanes-Oxley
Act of 2002.

      Interest expense decreased to $0.4 million for the three months ended
March 27, 2005, from $0.5 million for the comparable period in 2004, which is
the result of the reduction in the underlying debt.

      The Company's effective income tax rate was 38.5% and 40.5% in 2005 and
2004, respectively.

FINANCIAL CONDITION AND LIQUIDITY

      At March 27, 2005, the Company had current assets of $97.3 million,
including $21.8 million in cash, current liabilities of $74.9 million and
working capital of $22.4 million, which represents a $5.5 million increase from
December 26, 2004.

      At March 27, 2005, the Company's long-term debt, including current
installments, consisted of $15.0 million borrowed under its term credit
facility. The term credit facility was a one-year revolver that converted on
February 15, 2003 into a four-year term loan carrying a variable interest rate
based upon LIBOR. The aggregate principal balance of the loan is required to be
paid in sixteen consecutive equal quarterly installments which commenced on
March 31, 2003.

      On March 19, 2004, the Company entered into a Second Amended and Restated
Credit Agreement relating to its senior credit facility. The agreement amends
certain financial covenants, provides that advances made under the facility will
be subject to a monthly asset coverage test equal to 85% of eligible receivables
and requires the Company to provide collateral for amounts due under the
facility in the event it fails to meet certain financial projections for two
consecutive quarters. At March 27, 2005, the Company was in compliance with its
credit agreement covenants.

      Other long-term liabilities include the fair market value on the Company's
interest rate swap along with the Company's post-retirement benefits liability
that relates to the acquisition of Underwriters Salvage Company in 1994. The
amount recorded at March 27, 2005 for the post-retirement benefits liability was
approximately $2.4 million.

      Capital expenditures were $3.1 million for the three months ended March
27, 2005. These capital expenditures consisted of various branch improvements,
including upgrades to existing branches, the development of new facilities, and
continued enhancements to the Company's information technology system.

                                       12
<PAGE>

      The Company's Board of Directors authorized the purchase of 1,500,000
shares of the Company's common stock in September 2000 and an additional 750,000
shares in April 2003, for a combined authorization of 2,250,000 shares.
Purchases may be made from time to time in the open market or in privately
negotiated transactions, subject to the requirements of applicable laws, and
will be financed with existing cash and cash equivalents, marketable securities,
and cash from operations. As of March 27, 2005, the Company had purchased
906,562 shares pursuant to this authorization at an average price of $10.63 per
share.

      The Company believes that existing cash and cash equivalents, as well as
cash generated from operations, will be sufficient to fund capital expenditures
and provide adequate working capital for operations for the next twelve months.
Part of the Company's plan is to pursue continued growth, possibly through new
facility start-ups, acquisitions, and the development of new claims processing
services. At some time in the future, the Company may require additional
financing. There can be no assurance that additional financing, if required,
will be available on favorable terms.

      The preparation of the consolidated financial statements in conformity
with accounting principles generally accepted in the United States requires
management to make estimates and judgments that affect the reported amounts of
assets, liabilities, revenues and expenses, as well as the related disclosures.
The Company believes the critical accounting policies that require significant
judgments and estimates are related to goodwill, deferred income taxes, and
long-lived assets. There have been no changes in the critical accounting
policies since the fiscal year end ended December 26, 2004. For further
information regarding these policies, please refer to the Company's Form 10-K
for the fiscal year ended December 26, 2004.

FACTORS THAT MAY AFFECT FUTURE RESULTS

      The Company operates in a changing environment that involves a number of
risks, some of which are beyond the Company's control. The following discussion
highlights some of these risks.

      Period Fluctuations. The Company's operating results have in the past and
may in the future fluctuate significantly depending on a number of factors.
These factors include, but are not limited to, the actual cash value of salvage
vehicles, changes in the market value of salvage vehicles, delays or changes in
state title processing, general weather conditions, changes in regulations
governing the processing of salvage vehicles, the availability and quality of
salvage vehicles and buyer attendance at salvage auctions. The Company is also
dependent upon receiving a sufficient number of total-loss vehicles as well as
recovered theft vehicles to sustain its profit margins. Factors that can affect
the number of vehicles received include, but are not limited to, driving
patterns, reduction of policy writing by insurance providers, which would affect
the number of claims over a period of time, and changes in direct repair
procedures that would reduce the number of newer, less damaged total-loss
vehicles, which tend to have the higher salvage values. Future decreases in the
quality and quantity of vehicle inventory, and in particular the availability of
newer and less-damaged vehicles would have a material adverse effect on the
operating results and financial condition of the Company. Additionally, in the
last few years there has been a declining trend in theft occurrences. As a
result, the Company believes that period-to-period comparisons of its results of
operations are not necessarily meaningful and should not be relied upon as any
indication of future performance. Furthermore, revenues for any future quarter
are not predictable with any significant degree of accuracy, and the Company's
operating results may vary significantly due to its relatively fixed expense
levels. Due to all of the foregoing factors, it is likely that in some future
quarters the Company's operating results will fall below the expectations of
public market analysts and investors. Any failure to meet expectations of
securities analysts or the market in general could adversely affect the market
price of the Company's common stock.

      Competition. The Company faces intense competition for the supply of
salvage vehicles as well as competition from processors of vehicles from other
national and regional salvage pools. The Company may encounter further
competition from existing competitors and new market entrants that are
significantly larger and have greater financial and marketing resources. Other
potential competitors include used car auction companies, providers of claims
software to insurance companies, certain salvage buyer groups and insurance
companies, some of which presently supply auto salvage to the Company. While
most insurance companies have abandoned or reduced efforts to sell salvage
vehicles without the use of service providers such as the Company, they may in
the future decide to dispose of their salvage directly to end users. The Company
may not be able to compete successfully against current or future competitors,
which could impair its ability to grow and achieve or sustain profitability.

                                       13
<PAGE>

      Dependence on Key Insurance Company Suppliers. Historically, a limited
number of insurance companies has accounted for a substantial portion of the
Company's revenues. For example, in 2004, vehicles supplied by the Company's
three largest suppliers accounted for approximately 37% of the Company's total
unit sales. The largest suppliers, State Farm Insurance, Zurich Insurance, and
GEICO, accounted for approximately 16%, 11%, and 10%, respectively, of the
Company's unit sales. A loss or reduction in the number of vehicles from any of
these suppliers, or adverse changes in the agreements that these suppliers have
with the Company, could have a material adverse effect on the Company's
operating results, financial condition and quantity or quality of inventory.

      Dependence on Information and Technology Systems. The Company's ability to
provide cost-effective salvage vehicle processing solutions to the Company's
customers depends in part on the Company's ability to effectively utilize
technology to provide value-added services to the Company's customers. The
Company has implemented a new web-based operating system, which allows the
Company to offer hybrid internet/live auctions and to provide vehicle tracking
systems and real-time status reports for the Company's insurance company
customers' benefit. The Company's ability to provide the foregoing services
depends on the Company's capacity to store, retrieve and process data, manage
significant databases and expand and periodically upgrade our information
processing capabilities. As the Company continues to grow, the Company will need
to continue to make investments in new and enhanced information and technology
systems. Interruption or loss of the Company's information processing
capabilities or adverse consequences from implementing new or enhanced systems
could have a material adverse effect on the Company's operating results and
financial condition. As the Company's information system providers revise and
upgrade their hardware, software and equipment technology, the Company may
encounter difficulties in integrating these new technologies into the Company's
business. Although the Company has experienced no significant breaches of the
Company's network security by unauthorized persons, the Company's systems may be
subject to infiltration by unauthorized persons. If the Company's systems or
facilities were infiltrated and damaged by unauthorized persons, there could be
a significant interruption to the Company's ability to provide many of the
Company's electronic and web-based services to the Company's customers. If that
were to occur, it could have a material adverse effect on the Company's
operating results and financial condition.

      Governmental Regulation. The Company's operations are subject to
regulation, supervision and licensing under various federal, state and local
agencies statutes and ordinances. The acquisition and sale of totaled and
recovered theft vehicles is regulated by state motor vehicle departments in each
of the locations in which the Company operates. Changes in law or governmental
regulations or interpretations of existing law or regulations could result in
increased costs, reduced salvage vehicle prices and decreased profitability for
the Company. In addition to the regulation of sales and acquisitions of
vehicles, the Company is also subject to various local zoning requirements with
regard to the location of its auction and storage facilities. These zoning
requirements vary from location to location. Failure to comply with present or
future regulations or changes in existing regulations could have a material
adverse effect on the Company's operating results and financial condition.

      Provision of Services as a National or Regional Supplier. The provision of
services to insurance company suppliers on a national or regional basis requires
that the Company expend resources and dedicate management to a small number of
individual accounts, resulting in a significant amount of fixed costs. The
development of a referral-based national network service, in particular, has
required the devotion of financial resources without immediate reimbursement of
these expenses by the insurance company suppliers. The Company may not realize
sufficient revenue from these services to cover these expenses, in which case,
its results of operations may be materially adversely affected.

      Expansion and Integration of Facilities. The Company seeks to increase
sales and profitability through acquisition of other salvage auction facilities,
new site expansion and the increase of salvage vehicle volume at existing
facilities. The Company may not be able to continue to acquire new facilities or
add additional facilities on terms economically favorable to the Company, or at
all, or increase revenues at newly acquired facilities above levels realized
prior to acquisition. The Company's ability to achieve these objectives is
dependent on, among other things, the integration of new facilities, and their
information systems, into its existing operations, the identification and lease
of suitable premises, and the availability of capital. There can be no assurance
that this integration will occur, that suitable premises will be identified or
that additional capital will be available to fund the expansion and integration
of the Company's business. Any delays or obstacles in this integration process
could have a material adverse effect on the Company's operating results and
financial condition. Furthermore, the Company has limited sources of additional
capital available for acquisitions, expansions and start-ups. The Company's
ability to integrate and expand its facilities will depend on its ability to
identify and obtain additional sources of capital. In the future,

                                       14
<PAGE>

the Company will also be required to continue to improve its financial and
management controls, reporting systems and procedures on a timely basis and to
expand, train and manage its employee work force. The failure to improve these
systems on a timely basis and to successfully expand, train and manage the
Company's work force could have a material adverse effect on the Company's
operating results and financial condition.

      Volatility of Stock Price. The market price of the Company's common stock
has been and will continue to be subject to significant fluctuations in response
to various factors and events, including variations in the Company's operating
results, the timing and size of acquisitions and facility openings, the loss of
vehicle suppliers or buyers, the announcement of new vehicle supply agreements
by the Company or its competitors, changes in regulations governing the
Company's operations or its vehicle suppliers, environmental problems or
litigation. Any failure to meet expectations of securities analysts or the
market in general could adversely affect the market price of the Company's
common stock.

      Environmental Regulation. The Company's operations are subject to federal,
state and local environmental laws and regulations. In the salvage vehicle
auction industry, large numbers of wrecked vehicles are stored at auction
facilities for short periods of time. Minor spills of gasoline, motor oils and
other fluids may occur from time to time at the Company's facilities and may
result in soil, surface water or groundwater contamination. Petroleum products
and other hazardous materials are contained in aboveground or underground
storage tanks located at certain of the Company's facilities. Waste materials,
such as waste solvents or used oils, are generated at some of the Company's
facilities and are disposed of as non-hazardous or hazardous wastes. The Company
believes that it is in compliance in all material respects with applicable
environmental regulations and does not anticipate any material capital
expenditure for environmental compliance or remediation. To date, the Company
has not incurred significant expenditures for preventive or remedial action with
respect to contamination or the use of hazardous materials. Environmental laws
and regulations, however, could become more stringent over time and the Company
may be subject to significant compliance costs in the future. Future
contamination at any one or more of the Company's facilities, or the potential
contamination by previous users of certain acquired facilities, create the risk,
however, that the Company could incur significant expenditures for preventive or
remedial action, as well as potential liability arising as a consequence of
hazardous material contamination, which could have a material adverse effect on
the Company's operating results and financial condition.

      Sarbanes-Oxley Act Compliance. Sarbanes-Oxley Act Compliance. During the
Company's third fiscal quarter 2004, the Company retained the services of
Jefferson Wells International to assist the Company in complying with the
requirements of Section 404 (c) of the Sarbanes Oxley Act of 2002 ("Section 404
(c)"). Pursuant to Section 404 (c), the Company's management must (i) establish
and maintain adequate internal control over its financial reporting; (ii)
identify the framework used by management to evaluate the effectiveness of those
controls; (iii) assess and attest to the effectiveness of those controls; and
(iv) provide an attestation by the Company's independent auditors as to
management's assessment of its internal controls over financial reporting. In
order to comply with Section 404(c), the Company has to date incurred
significant costs and anticipates further financial expenditures and dedication
of managerial resources in its compliance efforts. Though the Company has
complied with the requirements of Section 404 (c) and attested to the
effectiveness of its internal controls over financial reporting in its amended
annual report on Form 10-K for the fiscal year ended December 26, 2004, it
cannot be certain that it will be able to continue to comply with the
requirements of Section 404 (c) and provide an attestation as to the
effectiveness of its internal control over financial reporting in its future
periodic reports, within the prescribed time. The failure of the Company to
comply with Section 404(c) and complete its assessment of its internal controls
in the prescribed time and obtain from its independent auditors an attestation
to management's assessment of the effectiveness of its internal controls over
financial reporting could have a material adverse affect on the Company's
business or stock price depending on the reasons for the failure.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

      The Company is exposed to interest rate fluctuations on its floating rate
credit facility, under which the Company has outstanding a $15.0 million term
loan at March 27, 2005. In 2002, the Company entered into an interest rate swap
to mitigate its exposure to interest rate fluctuations, and does not, as a
matter of policy, enter into hedging contracts for trading or speculative
purposes. At March 27, 2005, the interest rate swap agreement had a notional
amount of $15.0 million, and provided that the Company pay a fixed rate of
interest of 4.4% and receive a LIBOR-based floating rate on the notional amount.
At March 27, 2005, the interest rate on the term loan was 5.4%

                                       15
<PAGE>

and the entire swap agreement qualified for hedge accounting. The Company
believes that its exposure to adverse changes in interest rates is not
significant.

ITEM 4. CONTROLS AND PROCEDURES

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

      Based on the evaluation required by Rule 13a-15(b) under the Securities
Exchange Act of 1934, the principal executive officer and principal financial
officer of the Company have concluded that the Company's disclosure controls and
procedures (as defined in Rules 13a-15(e)), as of the end of the period covered
by the report, are effective to ensure that the information required to be
disclosed by the Company in reports that it files or submits under the
Securities Exchange Act of 1934 is recorded, processed, summarized and reported
within the time period specified in SEC rules and forms. The disclosure controls
and procedures are designed to provide reasonable assurance of achieving the
desired control objectives and the principal executive officer and principal
financial officer of the Company have concluded that the Company's disclosure
controls and procedures are effective.

DESIGN AND EVALUATION OF INTERNAL CONTROLS OVER FINANCIAL REPORTING.

      Management, including the principal executive officer and principal
financial officer of the Company, have designed internal control over financial
reporting, or caused such internal control over financial reporting to be
designed under their supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted accounting
principles.

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

      During the first quarter of 2005, we made changes to our controls and
procedures as part of our ongoing monitoring and improvement of our controls.
However, none of these changes has materially affected, or are reasonably likely
to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION.

ITEM 1. LEGAL PROCEEDINGS.

      In addition to the legal proceedings described in its Annual Report for
the year ended December 26, 2004, the Company is from time to time subject to
claims and suits arising in the ordinary course of business. Although the
ultimate disposition of such proceedings is not presently determinable,
management does not believe that the ultimate resolution of these matters will
have a material adverse effect on the Company's financial condition, results of
operations or cash flows. The Company maintains comprehensive general liability
insurance that it believes to be adequate for the continued operation of its
business.

Rancho Cordova Plane Crash

      On February 4, 2003, the Company filed a lawsuit in the Superior Court of
California, County of Sacramento, against, among others, Emery Air Freight
Corporation ("Emery") and Tennessee Technical Services ("TN Tech"), the aircraft
maintenance provider. The lawsuit seeks to recover damages caused by the crash
of an Emery DC-8 aircraft onto the Company's Rancho Cordova, California facility
on February 16, 2000. The aircraft was destroyed, and the three crew members
aboard the aircraft were killed. The crash and the resulting release of jet fuel
and fire destroyed a significant part of the Company's facility and contaminated
it with ash, hydrocarbon, lead and other toxic materials. Emery refused to clean
up the contamination, and the Company was required to do so. The Company
suffered more than $3.0 million in inventory loss, clean-up and remediation
costs, business interruption losses, legal and consulting fees, and other
losses, costs, and expenses. The Company's property insurance carrier, Reliance,
paid a large portion of its inventory losses. On April 12, 2005, the Company
engaged in mediation with TN Tech. The mediation resulted in a settlement of the
dispute whereby TN Tech agreed to pay $2.35 million to the Company for its
unrecovered losses resulting from the crash. In exchange, the Company agreed

                                       16
<PAGE>

to release TN Tech and Emery from all of its claims arising from the crash. The
Company expects payment from the settlement mid-May 2005.

ITEM 2. CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY
SECURITIES.

      The Company has never declared or paid any cash dividends on its common
stock and does not anticipate paying any cash dividends in the foreseeable
future. The Company intends to retain any future earnings to finance the growth
and development of its business. In addition, the Company's financing agreement
limits the Company's ability to pay cash dividends to no more than 25% of the
Company's consolidated net income earned over a specified period.

      As of March 27, 2005, the Company had purchased 906,562 shares of common
stock pursuant to Board authorization at an average price of $10.63 per share.
The maximum number of shares that may yet be purchased under the plan is
1,343,438. The Company records treasury stock purchases using the cost method of
accounting. The following table reflects all purchases of equity securities by
the Company during each month of the first quarter of 2005.

                      ISSUER PURCHASES OF EQUITY SECURITIES

<TABLE>
<CAPTION>
                                                      (c) TOTAL NUMBER OF
                      (a) TOTAL                       SHARES PURCHASED AS     (d) MAXIMUM NUMBER OF
                      NUMBER OF       (b) AVERAGE      PART OF PUBLICLY       SHARES THAT MAY YET BE
                        SHARES         PRICE PAID     ANNOUNCED PLANS OR       PURCHASED UNDER THE
      PERIOD          PURCHASED        PER SHARE         PROGRAMS (1)           PLANS OR PROGRAMS
------------------    ---------       -----------     -------------------     ----------------------
<S>                   <C>             <C>             <C>                     <C>
FIRST QUARTER 2005

January                  34            $   21.75             906,514               1,343,486
February                  0            $       0                   0               1,343,486
March                    48            $   21.75             906,562               1,343,438
                        ---            ---------             -------               ---------
Total 2005               82            $   21.75             906,562               1,343,438
</TABLE>

(1) The Company's Board of Directors authorized the purchase of 1,500,000 shares
of the Company's common stock in September 2000 and an additional 750,000 shares
in April 2003, for a combined authorization of 2,250,000 shares. Purchases may
be made from time to time in the open market or in privately negotiated
transactions, subject to the requirements of applicable laws, and will be
financed with existing cash and cash equivalents, and cash from operations. The
Company's repurchase plan expires upon the repurchase of all authorized shares.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES. Inapplicable.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. Inapplicable

ITEM 5. OTHER INFORMATION. Inapplicable.

                                       17
<PAGE>

ITEM 6. EXHIBITS AND REPORT ON FORM 8-K.

      (a)   EXHIBITS.

            31.1* Certification by the CEO pursuant to Section 302 of the
                  Sarbanes-Oxley Act of 2002.

            31.2* Certification by the CFO pursuant to Section 302 of the
                  Sarbanes-Oxley Act of 2002.

            32.1* Certification by the CEO pursuant to Section 906 of the
                  Sarbanes-Oxley Act of 2002.

            32.2* Certification by the CFO pursuant to Section 906 of the
                  Sarbanes-Oxley Act of 2002.

            *     Filed herewith

      (b)   REPORTS ON FORM 8-K.

            The Company filed a current report on Form 8-K, dated April 28,
            2005, which contained a press release announcing the Company's
            financial results for the quarter ended March 27, 2005.

                                       18
<PAGE>

                                   SIGNATURES

      Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                              INSURANCE AUTO AUCTIONS, INC.

Date: May 6, 2005             By: /s/ Scott P. Pettit
                                  --------------------------------------
                              Name: Scott P.Pettit
                              Title: Senior Vice President and Chief Financial
                                     Officer (Duly Authorized Officer and
                                     Principal Financial Officer)

                                       19
<PAGE>

                                  EXHIBIT INDEX

EXHIBIT NO.

31.1        Certification by the CEO pursuant to Section 302 of the
            Sarbanes-Oxley Act of 2002.

31.2        Certification by the CFO pursuant to Section 302 of the
            Sarbanes-Oxley Act of 2002.

32.1        Certification by the CEO pursuant to Section 906 of the
            Sarbanes-Oxley Act of 2002.

32.2        Certification by the CFO pursuant to Section 906 of the
            Sarbanes-Oxley Act of 2002.